Archive for february gold chart

Spot gold experienced a sharp decline yesterday as the commodity market (along with others) was hit by a wave of profit taking and some return of Dollar strength. In addition with physical gold demand remaining weak and specialist gold backed exchange traded funds not recording any fresh inflows this current pullback may have some way to go. Spot gold prices fell $12.20 to settle at $923.15. From a technical perspective yesterday’s wide spread candle confirmed that the catalyst we have been waiting for has been ignited with the low of the day finishing well below the 40 day moving average and closing marginally above the support level in the $920 price region. To add to the bearish picture the 9 day has now crossed the 40 day and the 14 day average may well follow suit shortly. Whilst the longer term picture remains bullish in the short term the depth of this reversal will depend on where gold prices find their cushion and initially this could be back at the pivotal $900 per ounce or even back towards $882 last seen in early May. The key to any reversal in the spot gold prices is the US Dollar and whether investors perceive the Dollar or gold as the better vehicle to hedge against economic or geopolitical risk and herein lies the apparent contradiction that we are seeing at present. If we look at the Dollar index chart there is nothing to suggest from yesterday’s candle that spot gold (or indeed other commodities) should have fallen so heavily and if the correlation were correct we should have seen a consequent wide spread up bar on the index, which is clearly not the case.

The short term trend is bearish, the medium term trend is sideways while the long term trend is bullish.

With spot gold prices currently in consolidation mode it is sometimes useful to remember that there are seasonal and cultural factors which can affect the spot gold price, factors which we have to take into account when analysing the gold chart. Historical data suggests that from 1999 to 2008, returns of gold from the periods of August to January were better than that from February to July in 8 out of the 10 years and since 1979 this correlation has occurred 18 times in total. Part of the reason for higher demand during this period has been cultural, with India leading the way as the biggest consumers of gold in the world (for weddings and festivals), although latterly they have been joined by the Chinese and the explosive growth of gold backed Exchange Traded Funds. However, this year’s figures for India show that imports of gold in the first 5 months of 2009 stood at 39.6 metric tons, a decline of around one third for the same period last year, and in February and March India recorded zero imports. Reasons for such a fall in demand have been given as the rise in the cost of spot gold coupled with a weakening of the Indian Rupee. From a technical perspective the 40 day moving average continues to provide some buoyancy to spot gold prices which are now perched precariously on the lowest of our three moving averages, presenting a rather fragile picture. With all three averages now beginning to bunch the technical picture is decidedly unclear and any small change in an associated market such as currency or equities will be enough to tip gold prices over the edge, with the $920 to $925 region then providing the first line of defence to any move lower. For spot gold prices to move we would need to see a sustained break and hold above the $957 price point coupled with support from all three moving averages. Given that we have the unusual “triple witching” today with expiry of options across all markets my trading suggestion is to stay out, particularly as we are now approaching the weekend with squaring positions and everyone waiting to see which way markets are going to jump. Spot gold lost $7.62 in yesterday’s gold trading session ending the day at $934 per ounce.

Yesterday’s wide spread downbar in the spot gold chart merely reflected the market’s view of the US dollar, which found some support following positive statements from various G8 ministers who reinforced theirs view of the US dollar as a reserve currency. In addition markets reacted nervously to possible problems in the German banking system and as a consequence there was a negative sentiment towards the Euro. Also yesterday’s trading across all markets was characterized by a total lack of fundamental news which tends to increase price volatility and randomness. Spot gold fell a total of $7.23 to settle at $930.57 per ounce. From a technical perspective whilst yesterday’s down bar continued Friday’s bearish tone, the key element on the gold chart is the deep lower wick and the fact that the close of the day seems to have found support on the 40 day moving average. This was one of the points I highlighted yesterday which could be significant should we now see the short term reversal halted and the spot gold price bounce back. Indeed in this morning’s early trading we have already seen the opening price once again supported by the 40 day moving average with the price of gold currently $7 up on the day and reversing yesterday’s losses. The salient point will be whether this average continues to provide support in this way but should it fail then we could see a deep pullback, possibly as low as the $920 price region where further support awaits.

The short term trend is bearish, the medium term trend is sideways while the long term trend is bullish.

The question today for spot gold prices is whether we are going to see yet another long legged doji on the daily gold chart to make it five in a row, and a full house on the week. Having initially moved lower in early trading following a higher US dollar after retail sales came in marginally below expectations spot gold prices remained uncertain as to which direction to take once again. A weakening of the US dollar in later trading did manage to see spot gold prices move back into positive territory where they settled $3.33 higher at $956.85 per ounce. From a technical perspective there is little we can glean from an analysis of the daily gold chart other than the obvious fact that gold prices are in a period of consolidation within a very tight range, and the only items of note are as follows: first that the 9 day moving average is about to cross the 14 day moving average which may suggest a bearish tone, and second that the close of each day this week has finished below the 14 day moving average. This view may be counterbalanced to some degree by the fact that despite the two significant bearish signals of last week, the price of gold has failed to follow through in any meaningful way, which in itself could be an important indication that the market has discounted these earlier signals. My trading suggestion for today is to step aside from the market for two reasons, firstly as traders will be squaring positions ahead of the weekend, and secondly all markets, including commodities and forex, are waiting for any signals from this weekend’s round of G8 meetings which are taking place in Italy. Hopefully by Monday we will have a clearer picture for the future direction of gold prices. A quick check on the weekly chart fails to provide us with any further clues other than the gold price is well above all three moving averages and, as in the daily chart, has failed to follow through on the bearish signal here as well.

Yesterday’s modest recovery in the spot gold price, was primarily as a result of a re-emergence of dollar weakness and the price of gold ended the day $1.95 higher to settle at $955.75 per ounce. Technically we are now approaching a delicate and potentially complex point in the daily gold chart for a number of reasons which I will try to explain as follows. First in the last 6 days we have had two bearish engulfing signals, the first of which was on Wednesday, last week, followed by a second on Friday which was triggered by the NFP employment data and a temporary return of dollar strength to the market, with the closing price of that day finishing below both the 9 and 14 moving averages. This Monday’s candle then produced a “hammer” candle which, whilst not indicative of a reversal, certainly suggests that the selling pressure in spot gold prices was absorbed by the market with a return of the bulls. Yesterday’s candle on the gold chart provided a long legged doji which is generally considered a sign of indecision and therefore indicating a possible turning point, so the question, of course, is which direction can we expect the price of gold to take? In order to answer this question we need to consider some of the broader aspects of the gold chart, which includes the fact that prices are still below both the 9 and 14 day moving averages, but this is counterbalanced by the fact that gold prices on both Monday and Tuesday found support at the $955 per ounce price point. Given the above analysis, and bearing in mind that we have some conflicting signals at present, my feeling is that on balance I expect gold prices to move higher once again in the short term, not least because we seem to have found some support at the price point outlined above. In addition if we look at the dollar index, which provides a view on the future strength or weakness of the dollar, this looks decidedly bearish once again in the short term.

The short and long term trends are bullish while medium term trend is sideways.